Tulip Investments Pty Ltd & Anor v Edwards & Anor [2009] VSC 492

1 This proceeding was commenced by the plaintiffs in December 2006. The nature of the claim against the defendant is not relevant for present purposes.

3 On 8 October 2007, the plaintiffs obtained leave from the Federal Court of Australia to continue, and prosecute to judgment, their claims against the defendant in this proceeding. I infer that this leave was sought and granted because the defendant, a former solicitor, may be insured against the claims made against him.

4 The defendant initially filed a holding defence containing admissions, non-admissions and denials. No positive allegations were made.

5 On 18 March 2008, the defendant was granted leave by a Master to file an amended defence contending that the plaintiffs' claim against him is an 'apportionable claim' pursuant to Part IVAA of the Wrongs Act 1958 ('the Act'), and alleging that Michael Kyriackou was a 'concurrent wrongdoer' within the meaning of that Part. The defendant was also granted leave to file and serve a third party notice against Mr Kyriackou. The plaintiffs consented to the orders granting leave. The amended defence and third party notice were each filed on 18 April 2008. In the third party statement of claim, the defendant pleaded that Mr Kyriackou was liable to the plaintiffs in respect of the same loss and damage claimed against him. On this basis, the defendant claimed indemnity or contribution from Mr Kyriackou in the event that the defendant is adjudged liable to the plaintiffs.

6 Understandably, given that claims for indemnity and contribution were made against him by the defendant, Mr Kyriackou filed an appearance and a defence to the third party notice.

7 Mr Kyriackou then applied to have the third party statement of claim struck out. That application was heard by a Master on 12 August 2008. The defendant contended at that hearing that the purpose of the third party proceeding was to invoke the proportionate liability regime under the Act. Notwithstanding this submission, no application was made to amend the third party statement of claim to make it plain that no monetary claim was made against Mr Kyriackou. The claims for indemnity and contribution remained.

8 Mr Kyriackou's application to strike out the third party statement of claim at this stage was dismissed. He did not appeal against that dismissal.

9 In May 2009, Mr Kyriackou's solicitors wrote to the solicitors for the defendant. They sought confirmation that the trustee of the defendant's bankrupt estate had consented to the bringing of the third party proceeding. It was made clear that, in the absence of the trustee having consented, it would be contended that the defendant did not have standing to prosecute the third party proceeding.

10 The trustee of the defendant's bankrupt estate has not consented to the bringing or prosecution of the third party proceeding against Mr Kyriackou. In these circumstances, Mr Kyriackou's solicitors issued a summons seeking to dismiss the third party proceeding. The sole ground relied upon was that the defendant, being an undischarged bankrupt, does not have standing to prosecute the third party proceeding in the absence of consent from his trustee in bankruptcy.

11 In response to the application, the solicitor for the defendant swore an affidavit detailing the history of the proceeding. In that affidavit, the solicitor swore:

The sole purpose for the issuing of the Third Party Notice against the Third Party was to permit the Defendant the benefit of Part IVAA of the Wrongs Act 1958 in his Defence to the Plaintiffs' Statement of Claim. The Defendant wishes to pursue his rights pursuant to Part IVAA. The Defendant does not wish to pursue any claims against the Third Party for financial contribution and indemnity and undertakes not to pursue such claims against the Third Party. The Defendant does not wish to obtain any financial relief from the Third Party, but has issued the third Party Notice purely to make the Third Party a party to the proceeding so that the Court may take into account his conduct in determining what liability, if any, shall be attributed to the Defendant for the Plaintiffs' alleged loss.[1]

12 The application was heard by an Associate Justice on 29 June 2009. His Honour dismissed the application. Leave was granted to the defendant to file and serve an amended third party statement of claim.

13 An amended third party statement of claim was filed on 7 July 2009. In the amended claim, the defendant seeks to invoke the proportionate liability regime contained in Part IVAA of the Act, alleges that his liability to the plaintiffs is limited under that regime, and withdraws the claims for indemnity or contribution from Mr Kyriackou. However, the defendant still claims 'such further or other relief as may be appropriate'. Further, there has never been an undertaking that a costs order will not be sought against Mr Kyriackou. Nor has the defendant offered to provide any security for Mr Kyriackou's costs in the event that, notwithstanding the amendments, Mr Kyriackou elects to continue to take an active part in the proceeding.

14 On 30 July 2009, pursuant to further leave granted by another Associate Justice, the defendant filed a further amended defence to the plaintiffs' claims. In that defence, the defendant relied upon its amended statement of claim in the third party proceeding to support its allegations that Mr Kyriackou is a concurrent wrongdoer.

15 On 7 August 2009, the plaintiffs filed a reply in which they joined issue with, among other things, the defendant's allegations that Mr Kyriackou is a concurrent wrongdoer.

16 By notice of appeal filed 6 July 2009, Mr Kyriackou appealed against the dismissal of his summons. The appeal was heard in the Practice Court.

17 It was submitted on behalf of the defendant that Mr Kyriackou was barred by principles of issue estoppel from seeking to dismiss the third party proceeding. It was submitted that Mr Kyriackou lost his opportunity to have the third party proceeding dismissed when he failed to appeal against the Master's refusal, in August 2008, to strike out the third party statement of claim. I do not accept that submission. An issue estoppel does not usually arise from the determination of an interlocutory application. Of course, the Court retains the power to dismiss an application for the same or similar relief as that refused in an earlier application, on grounds that the further application is an abuse of process. Further, I am not satisfied that the Master's decision in 2008 involved rejection of the contentions presently advanced on behalf of Mr Kyriackou.

18 It was submitted on behalf of Mr Kyriackou that the defendant lacked standing to commence or prosecute the third party proceeding in the absence of consent by the trustee of his bankrupt estate. For the following reasons, I accept that submission.

19 Section 60(2) of the Bankruptcy Act 1966 (Cth) provides:

An action commenced by a person who subsequently becomes a bankrupt is, upon his becoming a bankrupt, stayed until the trustee makes election, in writing, to prosecute or discontinue the action.

20 In Cummings v Claremont Petroleum NL,[2] the High Court considered whether bankrupts had standing to prosecute an appeal against a judgment enforceable against their bankrupt estate. It was submitted that it would be anomalous if an action commenced by a bankrupt before the bankruptcy was stayed under s 60(2) of the Bankruptcy Act, but the bankrupt retained the standing to commence an action after the bankruptcy. It was decided that the bankrupts had no standing to institute the appeal.

21 In a joint judgment, Brennan CJ, Gaudron and McHugh JJ stated that the authorities established 'that a bankrupt has no right to bring or prosecute proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy'. [3]

22 Prior to the amendments to the third party statement of claim, the third party proceeding was a proceeding by the defendant to protect, enhance or add to the property of which he was divested upon his bankruptcy. The plaintiffs' claims against him are in respect of debts provable in his bankruptcy. By the third party proceeding, the defendant was seeking to limit the amount of any liability his bankrupt estate may have to the plaintiffs, or to add to his bankrupt estate in the event that he was found liable to the plaintiffs for the full amount. In the absence of consent from the trustee in bankruptcy, the defendant had no standing to bring or continue that proceeding. By the amendments to the third party statement of claim, the defendant has abandoned his claims for indemnity or contribution. Accordingly, he no longer seeks to enhance or add to his bankrupt estate. He maintains the claim to protect his bankrupt estate, however, by pleading against Mr Kyriackou that he is a concurrent wrongdoer and seeking in his defence to limit the amount of his liability to the plaintiffs. In these circumstances, the third party proceeding is clearly an inappropriate procedure. The third party proceeding should be dismissed.

23 This does not mean that the defendant cannot avail himself of the proportionate liability regime. It means only that he must do so by way of defence, and not by way of bringing or prosecuting his own proceedings against a person alleged to be a concurrent wrongdoer. I reject the submission made on behalf of Mr Kyriackou that a bankrupt defendant, against whom leave to proceed has been granted, has no standing, in the absence of consent by his trustee, to invoke the proportionate liability regime by way of defence to the claim made against him. A bankrupt defendant may do so, providing that no claim for any financial relief is made against the alleged concurrent wrongdoer. Accordingly, for the limited purpose of invoking the proportionate liability regime, a bankrupt defendant in these circumstances may apply to the Court to add a concurrent wrongdoer as a defendant to the proceeding. By doing so, the bankrupt will not be bringing or prosecuting proceedings to protect, enhance or add to the property of which he has been divested on bankruptcy. He will be doing no more than raising a statutory defence which, for its invocation, requires the joinder of the alleged concurrent wrongdoer.[4]

24 To guard against the event that the Court dismissed the third party proceeding, the defendant applied for leave to join Mr Kyriackou as a defendant to the proceeding. The application should be granted. It was not contended by Mr Kyriackou that the allegations made by the defendant against him, if established, are incapable of leading to a finding that Mr Kyriackou is a concurrent wrongdoer. In these circumstances, justice requires that the defendant have an opportunity to avail himself of the proportionate liability regime.

25 The dismissal of the third party proceeding means that Mr Kyriackou is no longer the subject of any financial claim for indemnity, contribution or costs. In these circumstances, and putting to one side any orders which may be made for his costs of the proceeding to date, the extent to which he will be required, or desires, to participate in the proceeding falls for consideration. In determining appropriate directions, the Court should adopt a flexible approach on a case by case basis.[5]

26 The parties should be given an opportunity to consider their positions in light of these reasons for judgment. To enable this to occur, and subject to further submissions, I propose that the following orders be made:

(2) Michael Kyriackou be joined as a defendant to the proceeding.

(3) The defendant file and serve a further amended defence containing all of his allegations in support of his case that Mr Kyriackou is a concurrent wrongdoer.

(4) By a specified time, the plaintiffs must elect whether they wish to seek any relief against Mr Kyriackou and, if so, file and serve an amended statement of claim making such allegations against him as they may be advised.

(5) In the event that the plaintiffs elect to proceed against Mr Kyriackou, Mr Kyriackou file and serve a defence by a specified time.

(6) If the plaintiffs elect not to claim any relief against Mr Kyriackou, Mr Kyriackou must elect, by a specified time, whether he wishes to participate in the proceeding.

(7) The proceeding then be listed for further directions before me, for the purposes of determining its future conduct.

(8) Given that the plaintiffs were not represented on the hearing of the appeal, I will reserve liberty to them to apply to me on reasonable notice to the other parties. However, as noted above, the plaintiffs consented to the orders made on 18 March 2008 granting leave to the defendant to amend his defence and to Mr Kyriackou being joined as a third party.

27 In the event that the plaintiffs decide that they will not proceed against Mr Kyriackou, and Mr Kyriackou chooses not to participate further in the proceeding, I will deal with any application by Mr Kyriackou for his costs of the proceeding to date; including any application that those costs be paid by a person who is not a party to the proceeding.

28 If Mr Kyriackou chooses to participate further in the proceeding, issues will arise as to his costs to date and the costs of his further participation in the proceeding. Those issues should form the subject of further submissions at the directions hearing. Given the defendant's bankruptcy, an order that the defendant provide security for Mr Kyriackou's costs may be appropriate.

[1] Affidavit of Vanessa Elizabeth Kemp sworn 24 June 2009, [11] (emphasis added).

[5] Cowan v Greatorex [2008] VSC 401, [23]-[30]; P & V Industries Pty Ltd v Secombs [2008] VSC 209, [10]; Boral Resources (Vic) Pty Ltd v Robak Engineering & Construction Pty Ltd [1999] VSCA 66; [1999] 2 VR 507, [75]-[76]; Wimmera-Mallee Rural Water Authority v FCH Consulting Pty Ltd [2000] VSC 102, [15]-[22].